ETF Focus

Beware Low-Volatility ETFs

Stocks they invest in can produce poor results if too many investors pile in.

After blowout gains in 2013 that are unlikely to be repeated in 2014, investors looking for a less risky approach to stocks have the right idea. But low-volatility exchange-traded funds aren't the way to go. The lower-volatility, more staid stocks these ETFs invest in can get downright sluggish -- or, worse, excitable -- if too many investors pile in.

Low stock valuations are part of the secret behind the "low-volatility anomaly," the long-term outperformance of stocks with less volatility than average. But...